Heaven and Dell: the PC precipice

Christopher Williams

"I'd shut it down and give the money back to the shareholders," Michael Dell famously said in 1997, when asked what he'd do in Steve Jobs's shoes as he returned to Apple, at that time on the brink of collapse.

It's a quote that has haunted Mr Dell ever since, despite his improbable protestations that his barb had been "misconstrued" and that he meant only that he could not imagine leading any company other than his own.

Mr Jobs, of course, did not take the advice and, after reportedly unleashing a profane retort to Mr Dell, set about reviving his firm to the point where it became the world's most valuable company. To compound the revenge he also, with the iPhone and iPad, turbo-charged a trend that has forced Dell to the margins of the computer industry.

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Dell, begun in Michael Dell's Texas dorm room in 1984, revolutionised the PC industry. It allowed customers to customise their computers easily and, crucially, because Dell sold direct and pioneered the use of Chinese suppliers and assembly plants, it was cheap. That supply chain model is now essential to rivals such as Apple and Samsung.

Home and office buyers in the 1990s and early 2000s loved the choice and price, and Dell rode to the top of the PC industry at a time when it was a major source of technological innovation. Its basic, grey box design was accepted as standard and its advertising slogan "Dude, you're getting a Dell", and parodies of it, passed into everyday conversation.

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Dell's problems today are by no means unique. Big PC makers, including its venerable domestic rival, HP, have all been left standing by the boom in smartphone and tablet sales. Aside from Apple, it is consumer electronics firms that have responded best and are benefiting from office workers' desire to use the same device at work as they do at home.

Although the PC market has not collapsed, its growth days appear to be gone. In the last three months of 2012, there were 5 per cent fewer PCs sold than the same period a year earlier, according to technology research firm Gartner. Rival analysts IDC found that tablet sales were up 75 per cent for the quarter.

Dell's attempts to respond to the shift have been weak. Its Android tablet, the Streak, introduced in 2010, was overlooked at a time when the iPad was almost completely dominant. In March last year, Dell gave up on the even bigger market for smartphones, which are also taking over PC tasks, it had only half-heartedly pursued in the US with unremarkable handsets.

In the face of growing disquiet from investors, Mr Dell this week followed half of his plan for Apple and gave the money back to the shareholders. Ensuring he retains control of his firm, he piled $700 million of his personal fortune into a $24.4 billion private buyout. At its peak as the world's largest PC maker in the dotcom boom, Dell was worth $100 billion.

"The implication of going private is that Dell is planning radical changes to its strategy and product roadmap," said Carter Lusher of analysts Ovum.

But the smart money is against Mr Dell following Mr Jobs's lead and introducing a series of blockbuster gadgets. Its days as a consumer brand may be ending. Instead, it's likely he will focus on enterprise buyers, to whom price is a greater priority than brand or design. But Dell's failure to escape its desktop and laptop roots could still be a problem.

"Compounding Dell's challenge is the deep-seated brand identity as a 'PC company'," said Mr Lusher.

Even rival HP, beset by similar troubles, spoke up to note that "Dell has a very tough road ahead". Dell also faces problems if it does aim to concentrate on selling server computers and other tools of the IT department. Consumer companies such as Amazon and Google are moving in too, with applications and storage hosted in their "cloud" infrastructures - the networks of vast data centres that power online shopping and web searches.

Michael Dell's PR representatives have sniffily insisted this week that his 1997 verdict on Apple is "not relevant" to the buyout. Technology commentators have begged to differ, but Mr Dell, like Mr Jobs before him, will have to work to save the pioneer he built from scratch.